In the course of any given day, consumers utilize a composite of mechanisms to perform financial transactions. In particular, credit cards, debit cards, and cash are employed. Yet, it is habitual to such consumers that despite the availability of card-based options, cash (i.e., paper and coinage) remains a primary vehicle for financial transactions. Daily, consumers withdraw cash or receive cash for purchases, whether the purchase is major or incidental.
Yet, as a result of historical underpinnings to such transactions (tax predominantly), the amounts of money involved in such commercial transactions rarely result in whole numbers, but rather include fractions of a dollar. Nor are such transactions rounded to the nearest paper value (like a dollar, for instance), as the perception of the consumer defies such an outcome. With pricing and taxing, the net sum for transactions is therefore rendered in fractions of a dollar.
In virtually every commercial scenario, there is a residual, fractional portion of at least a dollar remaining from such transactions. In cash transactions, fractional metallic currency is inevitably received as coinage. Thereupon, the consumer must face the requirement of handling coinage and determining the best mechanism to utilize the same. Perhaps as a result of the bulk in carrying coinage about, or its perceived limited value (in comparison to paper money), or some other factor that renders the same a nuisance, carrying coinage is short term. The consumer generally seeks to disband the same.
One mechanism of disbanding of coinage is, e.g., a compulsory tip. In this manner, at the point of sale (“POS”), a consumer may simply say “keep the change” or present the change. While styled as a gracious gesture, the harsh reality is that the consumer would rather give away what appears to be trivial than face the nuisance associated with carrying the same. Of course, mathematically, calculating for that consumer the amount of money lost by avoiding the nuisance of change amounts to non-trivial amounts over time. Yet, this is but one option to avoid the necessity to handle metallic currency and determine where to place the same, or to carry the same.
Historically, the use of a “piggy bank” was predominately invoked as a curious form of non-institutional savings account (for which no interest is received). As the name connotes, the “piggy bank” was principally used by children as a means to teach conceptual savings and the individual valuations of the denominations of fractional metallic currency. Of course, such use for teaching is no longer necessary, as imitation “play” money is available, and children are trained to understand the fractional differences in currency quite rapidly. Thus, the juvenile teaching aspect of fractional metallic currency has truly become a relic of past memory, and not of present interest.
Moreover, as a result of the perceived substantial dissimilarity in value of individual coins (in comparison to large tranches of higher valued paper dollars), the perceived inconvenience of bulky currency has resulted in adults—not children—literally dumping their pockets at days end into containers (baskets, buckets, jars and the like), rarely to be seen or used by anyone again. All too often, jars are filled with coinage not because the consumer wishes a non-interest bearing savings account, but rather because the consumer wishes not to have the need to carry the bulk of coinage about. Industries have arisen that provide, for example, the ability—for a fee—to take such heavy and bulky containers filled with coinage to a location where the coinage is automatically sorted and paper currency (or chits) provided for conversion. Banks will accept coinage, but except for a rare few charge the customer for presenting the same. Even banks, as discussed in greater detail below, view coinage as a nuisance (while missing the point, pivotal to the subject invention, of the actual quantity of fractional metallic currency in circulation). Considering the heft of the containers and a cost for the transaction, one might determine that all those storage containers are not really worth the effort. Nonetheless, other than simply overtipping by the consumer in a transaction to avoid the receipt of fractional metallic currency (coinage) or simply giving the same away, of necessity the consumer will receive such heft, and routinely store it in some portion of the consumer's living space generally to be ignored for the future.
Antithetically, a number of devices still require the use of coinage for operation. For example, while “dropping a dime” in a telephone for a call has since changed in price, the concept of using coinage remains the same. Vending machines for the purchase of consumables or other items still require the sue of coinage. Passive vending machines, like parking meters, tolls, admissions rights, municipal and private transit (trains, subways, buses, taxis and the like) all require some fraction of a dollar (“fractional currency”) which generally amounts to coinage. (Some “smart” vending machines permit the use of debit or credit cards, but the technical interface is difficult to humanize, and market entry has been limited. Hard currency still remains the predominant form for the same.)
Despite the fact that consumers routinely engage such vending devices during the course of any given day, based upon the habitual desire to avoid the perceived nuisance of change (generally heft, ringing in the pockets, and other forms of consumer concern), rather than having change handy, the consumer who faces such devices must now scurry to a vendor not for a purchase, but to provide coinage—change on the dollar. This, of course, creates a never-ending burden on, for example, a street vendor proximate to an array of parking meters, to keep a stock pile of coins for swapping for dollars—of zero net sum gain—or, in the alternative, to almost rudely deny the desperate requester who has parked and is racing to avoid the ticket.
No matter the scenario, rarely does a day end with cash transactions “zeroing” out. Rather, the end result is that the consumer who initiates the day with no coinage (having dumped the change from the prior day in the family bin to avoid inconvenience) now completes the day with more coinage, which, in turn hits the same family bin. The situation escalates, in typical fashion. Rarely does the consumer actually prepare for the event, but rather, disturbingly, must face coinage at the time of the occurrence. Interestingly, despite the fact that the result of a failure to pay for, by way of example, a parking meter, results in a multiple dollar fine—which is in whole dollars and is typically paid by a mailed in check—such sanction is avoided only upon the necessity of the moment. As a result of the inherent nuisance of change, many a consumer will avoid the necessity for change-related behavior, or face the urgency of the moment if it occurs.
As shown by the foregoing, it has become known that consumers receive more coinage then they actually place back into commerce. For a further example, at the “register” in stores for typical commercial transactions, it should be noted that generally coinage is given away. Reportedly, many retail stores (supermarkets, for example) have daily (and at times more frequently) delivery of coinage in all denominations. Such stores must track the rate of depletion of the plurality of forms of fractional metallic currency in order to predict the needs and avoid the confusion of having too much of one form of coinage and not enough of another. While paper currency leaves such stores in armored trucks to be transferred to a banking institution, coinage is actually routinely delivered to such retail stores as the paper is extracted. The need to provide fractional currency in commercial transactions—which is heretofore solely in the form of coinage—is a constant, nagging occurrence to many retail establishments.
While governments can (and do) repatriate paper currency in large and successful manners for a host of necessary reasons, the same cannot be said of fractional metallic currency. Observably, consumers “hoard” coinage not because they are numismatists (coin collectors, of which there are many but the total amount of money involved is small) but because they simply wish to avoid the nuisance associated therewith. Simply put, paper is lighter and worth more. Yet, the Department of the Treasury reported that the total value of all fractional metallic currency in circulation is approximately a staggering $33.3 billion dollars, growing at a rate of about $900 million annually. Thus, the accumulation of coinage in total numbers is remarkable. Indeed, the sum total value of all paper currency in the form of $1, $5, and $10 bills in circulation is less than the value of metallic currency. Considering the disparate value between paper and coinage, the sheer bulk of such coinage is overwhelming, and the value staggering, heretofore beyond the control of the banking institutions.
It is thus an object of the instant invention to provide a system, method and devices that enable the minimization to elimination of fractional metallic currency from transactions without forfeiture of the underlying value. Likewise, it is a further object of the instant invention to provide a platform for which not just metallic currency is eliminated, although that is presently preferred, but likewise all currency can be eliminated in the future.
In order to understand the subtlety of the instant invention, it is necessary to understand money, banking, and the concept of “fractional-reserve banking.”
Arguably, money was perhaps the most important advancement as a platform for human development and exchange of products and services. Money has been independently utilized at one time or another in each important civilization in the history of the world. There is also a remarkable similarity in the process by which money has evolved in different times in history and in different parts of the world.
Historically, money has typically evolved through three stages. In the first stage, money is comprised of a rare and inherently valuable material. The value of each denomination is related to the quantity of rare material contained therein. In the second stage, money is made of another material, such as paper, with no inherent value. In this stage, however, such other material can be exchanged into the rare material upon demand. In the third and final stage, money cannot be exchanged into anything physical, but its value is determined by law and custom.
Physical money has historically arisen as a means to facilitate trade. In most cases some form of metallic money has been used, but there are also other examples, where shells, or even large stones (on an isolated island) have been used as money. Oil was proposed as form of currency by the great Soros (and indeed is, at some level, used as a currency in and of itself). Gold and silver have predominated in the world as intrinsically valuable rare materials that can be easily rendered into denominations (contained pictures or other images of origin or pictorial images), but other metals have occasionally also been used. Bronze was the basis of the monetary system in early Roman times. Copper has also been used at times, for example in Spain and Sweden. In many cases, combinations have been used, with fixed exchange rates between different metals. Those fixed exchange rates have usually broken down as the relative value of the metals has moved due to changes in supply or demand.
Coins are the basis of almost every metallic monetary system. A coin in a physical money system is a piece of metal with a stamp. The stamp is a guarantee that the metallic weight and content is correct. Likewise, it is a mechanism to standardized coins of the same denomination as actually being of the same weight, caliber and value. While metallic coinage may appear trivial in the current climate, quality was historically important. Previously, metals had to be weighed in order to determine value, and that made trade more difficult.
In the United States, the third stage indicated above—where paper currency is no longer backed by the value of the underlying rare material—occurred as a result of the abolition of the gold standard by President Franklin Roosevelt in 1933. At this point was born the substitution of fiat paper tickets by the Federal Reserve as the United States' “monetary standard.” Some thirty years later, the fractional metallic currency (coinage) followed suit, with the substitution of alloys for the traditional intrinsically valuable copper, silver and nickel originally used as the coinage material. Another crucial part of this process was the federal cartelization of the nation's banks through the creation of the Federal Reserve System in 1913.
Banking is a particularly arcane part of the economic system; one of the problems is that the word “bank” covers many different activities, with very different implications. During the Renaissance era, the Medicis in Italy and the Fuggers in Germany, were “bankers,” their banking, however, was not only private but also began at least as a legitimate, non-inflationary, and highly productive activity. Essentially, these were “merchant-bankers,” who started as prominent merchants. In the course of their trade, the merchants began to extend credit to their customers, and in the case of these great banking families, the credit or “banking” part of their operations eventually overshadowed their mercantile activities. These firms lent money out of their own profits and savings, and earned interest from the loans. Hence, they were channels for the productive investment of their own savings.
To the extent that banks lend their own savings, or mobilize the savings of others, their activities are productive and unexceptionable. Even in our current commercial banking system, if a customer purchases a $10,000 CD (“certificate of deposit”) redeemable in six months, earning a certain fixed interest return, that customer is actually taking savings and lending it to the bank (in exchange for the CD which is an “IOU”). The bank, in turn lends upon the money actually received in exchange for the CD at an interest rate higher than that being paid to the customer who purchased the CD. The difference between the higher rate to the debtor who received the loan, and the lower rate to the CD-holder who placed the cash, constitutes bank's earnings. Indeed, in this manner, the bank has served the function of channeling savings into the hands of credit-worthy or productive borrowers.
The same is even true of the great “investment banking” houses, which developed as industrial capitalism flowered in the nineteenth century. Investment bankers would take their own capital, or capital invested or loaned by others, to underwrite corporations gathering capital by selling securities to stockholders and creditors. The problem with the investment bankers is that one of their major fields of investment was the underwriting of government bonds, which plunged them hip-deep into politics, giving them a powerful incentive for pressuring and manipulating governments, so that taxes would be levied to pay off their and their clients' government bonds. Hence, the powerful and baleful political influence of investment bankers in the nineteenth and twentieth centuries: in particular, the Rothschilds in Western Europe, and Jay Cooke and the House of Morgan in the United States.
By the late nineteenth century, the Morgans took the lead in trying to pressure the U.S. government to cartelize industries they were interested in—first railroads and then manufacturing: to protect these industries from the winds of free competition, and to use the power of government to enable these industries to restrict production and raise prices.
In particular, the investment bankers acted as a ginger group to work for the cartelization of commercial banks. To some extent, commercial bankers lend out their own capital and money acquired by CDs. But most commercial banking is “deposit banking” based upon a perception, which most depositors believe, that their money is “down at the bank,” ready to be redeemed in cash at any time. For example, if person X has a checking account of $1,000 at a local bank, X knows that this is a “demand deposit,” i.e., that the bank pledges to pay him $1,000 in cash, on demand, anytime he wishes to “get his money out.” Naturally, the X's are convinced that their money is safely there, in the bank, for them to take out at any time. Hence, they think of their checking account as equivalent to a warehouse receipt. (If one puts a chair in a warehouse before going on a trip, one expects to get the chair back whenever one presents the receipt.) Unfortunately, while banks depend on the warehouse perception, the fact is far more complicated. Indeed, the money is not actually there at the warehouse.
An honest warehouse makes sure that the goods entrusted to its care are there, in its storeroom or vault. Deposit banks as the Banks of Amsterdam and Hamburg in the seventeenth century indeed acted as warehouses and backed all of their receipts fully by the assets deposited, e.g., gold and silver. This honest deposit or “giro” banking is called “100 percent reserve” banking. Ever since, banks have habitually created warehouse receipts (originally bank notes and now deposits) less than 100 percent, out of a carefully constructed fractional-reserve banking, meaning that bank deposits are backed by only a small fraction of the cash they promise to have at hand and redeem. Currently, in the United States, this minimum fraction is fixed by the Federal Reserve System annually. Presently and historically this level has been at 10 percent.
To understand fractional-reserve banking in the absence of a central bank, an example can be shown. “Y” invest $1,000 of cash in a bank 1. This amount is thus captive in the bank 1 subject to the terms of the investment. It pays out at a rate. This bank 1 then lends $10,000 to “W,” either for consumer spending or to invest in his business. The question arises: how can a bank lend more than it has received? The answer resides in the “fraction” in the fractional-reserve system. The bank simply opens a checking account of $10,000 for W. Why does W borrow from the bank? Well, for one thing, the bank charges a lower rate of interest than Y would have. Since demand deposits at the bank function as equivalent to cash, the nation's money supply has just increased by $10,000.
Now, W spends the money he borrowed. Sooner or later, the money he spends, whether for a vacation, or for expanding his business, will be spent on the goods or services of clients of another bank 2. Bank 2 receives a check from bank 1 and applies the same to demand cash (captive) so that it can utilize the same for fractional-reserve lending. Yet, if bank 1 defaults, the system could collapse.
Hence, under free competition, without government support and enforcement, there will only be limited scope for fractional-reserve banking. Banks could form cartels to prop each other up, but generally cartels on the market fail without government enforcement, without the government cracking down on competitors who insist on busting the cartel, in this case, forcing competing banks to pay up.
Hence historically there was a drive by bankers to compel the government to cartelize their industry by means of a Central Bank. Central Banking began with the Bank of England in the 1690s, spread to the rest of the Western world in the eighteenth and nineteenth centuries, and finally was imposed upon the United States by banking cartelists via the Federal Reserve System of 1913. Particularly enthusiastic about the Central Bank were the investment bankers, such as the Morgans, who pioneered the cartel idea, and who by this time had expanded into commercial banking.
In modern central banking, the Central Bank is granted the monopoly of the issue of bank notes (originally written or printed warehouse receipts as opposed to the intangible receipts of bank deposits), which are now identical to the government's paper money and therefore the monetary “standard” in the country. People want to use physical cash as well as bank deposits. If, therefore, if X seeks to redeem $1,000 in cash from his checking bank, the bank draws down its own checking account with the Federal Reserve Bank (the “Fed”), effectively “buying” $1,000 of Federal Reserve Notes (the cash in the United States today) from the Fed. The Fed, in other words, acts as a bankers' bank. Banks keep checking deposits at the Fed and these deposits constitute their reserves, on which they can and do perform fractional-reserve banking at the average leverage of 10 to 1.
For further example, if the Fed determines that it is advisable to expand (i.e., inflate) the money supply, the Fed goes into the market (called the “open market”) and purchases an asset. It doesn't really matter what asset it buys; the important point is that it writes out a check. The Fed could, if it wanted to, buy any asset it wished, including corporate stocks, buildings, or foreign currency. In practice, the Fed routinely acquires U.S. government securities.
Let's assume that the Fed buys $10,000,000 of U.S. Treasury bills from some “approved” government bond dealer (a small group), say Investment Banker on Wall Street. The Fed writes out a check for $10,000,000, which it gives to Investment Banker in exchange for $10,000,000 in U.S. securities. Investment Banker can do only one thing with the check: deposit it in its checking account at a commercial bank. The “money supply” of the country has already increased by $10,000,000; no one else's checking account has decreased at all. There has been a net increase of $10,000,000.
The commercial bank is delighted to get a check on the Fed, and rushes down to deposit it in its own checking account at the Fed, which now increases by $10,000,000. But this checking account constitutes the “reserves” of commercial banks, which have now increased across the nation by $10,000,000. This means that commercial banks can create deposits based on these reserves, and that, as checks and reserves seep out to other banks each one can add its own fractional-reserve move, until the banking system as a whole has increased its demand deposits by $100,000,000: ten times the original purchase of assets by the Fed. The banking system in most circumstances is required to keep cash reserves or cash equivalents at the Federal Reserve Bank amounting to 10 percent of customer deposits. The basis of this 10% reserve activity is called a “net transaction.” There are to other lesser activities that require no reserve to be provided to the Federal Reserve Bank: “non-transactions and non-personal saving deposits.” The banking system on a fractional-reserve basis on a net transactions designation has a “money multiplier”—the amount of deposits the banks can expand on top of reserves—which is 10. A purchase of assets of $10 million by the Fed has generated very quickly a tenfold, $100,000,000 increase in the money supply of the banking system as a whole.
It should be observed that banks are regulated (like Regulation D) in the manner in which protections are provided to prevent this leveraged system from collapsing. Yet, observably, banks today are highly competitive, seeking to increase their “captive” reserve in order to increase their fractional-reserve and ability to expand in the exponential process indicated above.
In order to permit expansion of the reserve at banks, banks are constantly seeking depositors, those who wish to have their money captive by a bank (as in, e.g., a CD) which permits the reserve to increase and the leverage (of about 10:1) to be employed upon this money.
The meeting between the approximately $33 billion of fractional metallic currency and the fractional-reserve banking system lies at the heart of the instant invention which provides a system, method and devices to achieve the goal of minimizing the use of fractional metallic currency as coinage, but rather keeping the same and transactions related thereto within the scope of a banking institution for use by both the depositor and the bank(s) in accordance with standard fractional-reserve banking, while permitting the depositor to avoid the inconvenience of the actual fractional currency without forfeiture of any of its value.
Other objects of the instant invention will be shown hereinbelow.